Golden Star Resources Ltd.
Q2 2021 Earnings Call Transcript

Published: 29 Jul 2021

[Operator:]

Good morning, ladies and gentlemen. Welcome to the Golden Star Resources Second Quarter 2021 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Today's call is being recorded on Thursday, July 29, 2021. And I'd now like to turn the conference over to Mr. Michael Stoner, Director, Investor Relations and Business Development. Please go ahead.

[Michael Stoner:]

Thank you everyone for joining Q2 results call. Before I hand over to the team, please could you note the disclaimer on Slide 2. The presentation is already available on our website. So you can either follow on the webcast or with the PDF on the website. I'm joined today by Andrew Wray, our CEO; Graham Crew, our COO; Paul Thomson, our CFO; and then Mitch Wasel, who - our exploration efforts.

[Andrew Wray:]

Thank you very much, Michael. And good morning, good afternoon to everybody. If we move on to Slide 4 and a quick reminder there of who we are, where we are and also the updated plan that we put out earlier this year in terms of both the reserve plan plus the life of mine extension in the PEA which takes us up to around 17 year mine life. And we'll talk through progress on that plan, the work that's ongoing and where we believe we are in that respect. If we move on to the next slide, Slide 5, specifically on Q2, and performance in Q2. As you can see, there some of the numbers as we highlighted a few weeks ago below target. There have been one or two challenges come up during the quarter, which Graham will give a little bit more detail on which we're making pretty good progress to resolving which is good. At the same time, we continue to strengthen the balance sheet, which Paul will go into a bit of detail on and we're in a good position to continue investing in the business to deliver that plan that I referred to on the previous slide. On the next slide, and specifically looking at the ongoing COVID situation, I think it was probably the set of results a year ago where we were showing the first quarter under COVID. And I don't think anybody at the time, so we'd be here a year later in many ways in the same position, certainly as regards to COVID. There's been in Ghana another tick up in cases as we've seen in many other countries. So we're back to probably the sort of rates we were up in end of February going into early March. We've maintained all of our protocols controls at site. And fortunately, we've managed to really minimize any impact. Certainly we've had no serious illness and no fatalities, which I think is the most important thing. And the business has had minimal impact albeit we have seen in terms of logistics for getting people in and out of site, in and out of country is clearly a lot more complicated than it was which just meant some skills are harder to get. And we've seen that in certain of the operational areas, which particularly is affected some of the development and meant that we've had to plan around that. So we're working with that, but fortunately, from a health perspective, minimal impact. On to the next slide, as I mentioned, we've had a number of challenges you can see reflected there in the guidance. So our focus as we go through this year is resolving those challenges this year, continuing to invest for the longer term future of the business and really exiting this year into 2022 with the business back on track and where it expects to be.

[Graham Crew:]

Thanks Andrew. I think we'll move straight across to slide number nine, just to give everyone a little bit of an update into the Paste backfill system. As Andrew mentioned in the guidance update, we spoke about this. So we had some delays to the commissioning dating back to Q1 in fact, and then when we pulled the first test stope we had some of the quality assurance results come back less than what we would have expected from the test work. So we've moved on to we're doing more test work now. The recent test results coming from the site QA, QC are giving us some confidence to move to further - another test stope in Q3, which will be happening in the next few weeks. And from there we are planning that we should be able to recommence filling in Q4. At this stage, we'll be going with a higher cement blend than we had originally planned just for that additional factor of safety. And we'll continue to test work to optimize the mix design as that work moves through. So over the quarter some positive results from the testing. And the clear path to reciting that plan is contingent on the second test site performing as expected. But that's the current plan to get back on track when it comes to the Paste fill and mining secondary stopes on 2022. Moving across to the next slides, Andrew touched on some of the challenges here. The mining rate was down a little bit for the quarter. That's really in the quarter really related to the development. We put development into the slide this time just to talk about that a little bit more. And you can see the step up in development from 2019 through the '21. Q3 2020 is when we added some additional equipment and we were expecting to see that step up. With COVID and some challenges around certainly expatriate operators, et cetera. That ramp up has been slower than we had planned for. And then going into H2 that's really the impetus for the re guidance and not been I will remind the secondary stopes that we had in the plan. So although development is stepping up, it's a little bit behind. Pleasingly over Q2, the development in June was much closer to the right that we're looking for going forward. So we're seeing good progress with the development improvements at site, production, in line with the slightly lower volumes and grade on expectations. Moving across to the next slide, just looking at the costs, little bit of a step up in costs partly related to the relatively fixed cost base at Wassa, although there's a little bit of cost increase coming through certainly from Q2, Q3 last year where we had some benefit of some power cost rebates and a little bit of cost inflation coming through and areas such as ground support. So as we're seeing the step up in development, a little bit more grounds for coming through and some increase costs for transport, et cetera and logistics, so just seeing a little bit of cost increase coming through.

[Paul Thomson:]

Thanks Graham. Good morning, good afternoon everyone. Contextualized Q2 has been a good quarter from our financial perspective despite having lately lower gold and just sold at just under 30,000 ounces. And there was issues which Graham has just articulated. Just by way of note, the purposes of the comparison to Q2 2020. I just point out that this quarter they're really strong operational and financial performance. Part of the reason that we had a really good quarter from a financial perspective is due to the macro environment and strong gold price. So during Q2, the business realized an average price of just over $1800 an ounce, so that was 1807 or 1709 post the impact of the Royal Gold stream. So the business continues to produce strong and robust EBITDA that was 7.6 million for the quarter and then adjusted EBITDA of 26 million. So in terms of those adjustments from EBITDA to adjusted EBITDA, we had 18.4 million. So these comprise the following non-cash adjustments that we had $700,000 for the fair value adjustments on their financial instruments. So that was loss in hedges of 900,000, which was offset by the gain in the convertible debenture embedded derivatives of $200,000. These are obviously a function of the gold market and the share price movements during the quarter. The large item relates to 17.17 million of other expenses, which relates primarily to the expected credit loss adjustment for the FGR receivable, which we've documented in our press releases recently and also annotated with notes within the shared earlier. In terms of earnings per share, this is impacted primarily by the expected credit loss that I've just explained in respect of the 17.4 million adjustments. If you'd go to Slide 14 please, the balance sheet. So as Andrew was alluding to earlier, the balance sheet continues to be repositioned to provide a stronger, more robust base to the business. So recently, we have restructured and upsized the Macquarie facility into an RCF. And that's actually provided additional liquidity to give the business a more appropriate debt structure as the business continues to grow and evolve.

[Mitch Wasel:]

Thanks Paul. Just on Slide 17 as Paul mentioned there, just a general overview of the areas of focus for our exploration programs. We spent 3.3 million in this quarter. The exploration focused on mostly at Wassa drilling the up and down mineralization from the known reserves. We were busy with five drill rigs overall, three at Wassa, we had one at CBC East which moved in towards the end of the quarter. And we have an aircore registered working on several regional targets up and down the trend. As I mentioned the focus is now going to be on the in-mine area and near-mine, which has been completed and a little bit on the regional stuff on. So let's move over to Slide 18 to take a look at an isometric view of the Wassa deposits as it stands. Just what we're looking at here is a view looking towards the east. And the results we're looking at everything in bold is the Q2 results that we've had from the up and down-dip drilling and the smaller font there you see is results we received to date. What you're looking at here is in the red lines or the red dotted circles are the areas where we're focusing our drilling on the infill. On the up-dip we're going to close in some spacing to follow up on some of the hits that we had in 2020, late in 2020. The 20 meters is at 6.9 grams per ton and we're going to be stepping in 15 meters north and south without trying to prove that up into your resource hopefully by the end of the year. The material that's down-dip is going to be tightened up to about 100 meter spacing just to follow up some of the down-dip material that we hit below the main B-Shoot trend. So total for the quarter, we drilled roughly five holes in this area totaling approximately 5000 meters. Let's move on to Slide 19. And I'm looking a little bit more detail on some of the sections and some of the hits we've had. On slide 19, what you'll see is the two intersections in hole six and hole eight, which actually intersected the 242 zone, which is of interest for us because this is part of the upper mining zone that we're looking at generating at Wassa as we recollect that we've gotten rid of the big open pit and we're looking at mining material from the open pit from the underground and in two areas and one of them being the 242 area. So this would be hopefully a different access that we're having further enabling us to get into an underground scenario where we have a separate decline and everything going in assets. So that's going to be a focus on this for growing up that area.

[Andrew Wray:]

Excellent. Thanks very much, Mitch. So just to conclude on Slide 23, as I said over the quarter, we've had some challenges. I think at the same time, as you've just heard, we've made - continue to make some significant progress in the business. As Graham said, we're well on our way to resolving those operational issues that we've encountered, getting the operations back to where we expect them to be. I think that will strengthen the business longer term, we've continued to invest. And as Mitch was saying there, we've seen some really encouraging progress in the exploration activities over the front half of the year. At the same time, the focus has also been on the balance sheet. As Paul said, it's pretty impressive. We've - our net debts since the start of last year, put a lot of money into the business at the same time. And we're well placed to deal with a convertible bond, which is one of the last pieces in getting ourselves properly stabilized and prepared for the longer term on a financial footing. And that'll allow us to continue the investment plan we outlined through the reserve PEA plans and really set the business up for the longer term. So with that, I'll hand it back to Michelle and we're happy to take any questions.

[Operator:]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Bryce Adams of CIBC. Please go ahead.

[Bryce Adams:]

Good afternoon. I have a couple questions on the Paste test work and development, right. Firstly, on the Paste test work, one of the tests have been completed in Australia that can't be done in countries that compressive strength tests then cost testing at cubes or is there something much more involved with that?

[Andrew Wray:]

Why don't you give us both the questions Bryce and then I guess that probably both for Graham, but then we can deal with them both together.

[Bryce Adams:]

Yeah, that's pretty good guess. It'll probably go all to Graham. So a follow up on that one, I guess just a clarifying one was maybe a reminder about underground shotcrete at Wassa, there's no shotcrete underground from my memory. And then I'll move on to the development rates. I was just wondering if you could remind us on the number of jumbos on underground, how many jumbo crews are working and the average development rates that they achieved per month. And then just building on that one from - with the development of the 495 level, I think he said the level access has developed, so I was just wondering where the faces were now, is that in the foot wall drive? Or have you started on any ore drives? And what would be the total development meters for the entire 495 level? And is that indicative of other levels? Or does the footprint increase slightly with the next level? I think that's what I've got now, but maybe there'll be something more that comes over the answers.

[Andrew Wray:]

Thanks Brian. Graham, I think over to you.

[Graham Crew:]

That's quite a list of questions. But I'll tell you, so on the Paste test work, there's no particular testing that can be done in Australia, that can't be done at UMaT in Ghana, and that's why we're working with both MineFill Services and UMaT. Where MineFill Services are valuable is by our Paste experts. And I have worked with a lot of Paste plants around the world. So really, that's about optimizing the mix design. So we would always plan that there would be an opportunity to optimize the mix design down the track alternative binders, et cetera. What we saw in the initial test work was a higher degradation of strength over time. And certainly at the - not lower in the plant to mid ranges, less so at the higher command ranges, so which is why we're going for high cement now. So really their role is about optimizing the mix design and ensuring that our testing is consistent across the board. So that's the first question. Second question is on underground shotcrete. So we now have as part of the Paste plan commissioning, we're now having batch plants on site, shotcreting equipment for walls, barricades, et cetera. So that's now part of the Wassa. Arsenal if you like no, no plans to use it for ground support at this point in time. Jumbo so we have we have four frontline jumbos. And we're looking at 800 coordinators a month out of those four frontline jumbos. And getting all of those manned up consistently with COVID long rosters et cetera has been a challenge and I think other people have suffered from that challenge. On the 495 development, 495 will be a relatively typical level as we come down the plunge. What we see at Wassa it's relatively consistent. At the moment, we're focusing on foot wall drives from there. We'll - the ore development tends to be certainly in the cross cut area, it tends to be more just in time. So the primary focus on 495 is to get the full wall development in so that we can then develop slope accesses as we go potentially close.

[Bryce Adams:]

Yeah, I think that's it. I guess, coming out of that it's interesting that you've got the shotcrete fleet on site specifically for vent walls and barricades. Sounds like if you get the pipeline and the pipe still working properly and resolve strength issues, there may be an opportunity to do in cycle ground support at a future date.

[Graham Crew:]

Certainly Bryce, certainly that's potential. It's not one that we've done - is not one that we've done a lot of work on. The capacity is built for doing barricades and walls, but it is potential down the track especially as we get deeper. At the moment Wassa ground conditions are still good as you've seen and split sets and mesh in most areas are pretty much what's required.

[Bryce Adams:]

Yeah, copy that. Good luck with the second test start. We'll be watching for updates. Thanks a lot.

[Graham Crew:]

Thanks Bryce.

[Operator:]

Your next question comes from Raj Ray of BMO Capital Markets. Please go ahead.

[Raj Ray:]

Thank you, operator. Good afternoon, Andrew and team. I have three questions, if I may. And the first question is around the amount of open pits stockpile speed you expect for the second half of the year. Q2 was significantly higher than what you had guided at the beginning of the year. Second question was a follow up on the Paste fill. With increased cement content, if you can give us some rough idea about how much cost increase you expect as a result of that. And my third question was on the balance sheet and liquidity. Now, as you have mentioned, there doesn't seem to be any concern. And certainly I don't see any concern. But one of the question I had was with respect to the $30 million revolving credit facility, you do have a cash covenant where you need to maintain a minimum cash balance of 35 million to be able to draw down on that. So is that something that could cause a bit of a challenge? So yeah, that's - those are the three questions for now.

[Andrew Wray:]

Thank you, Raj. I think, Graham, probably the first two for you, then we'll pass to Paul, in terms of the Macquarie facility.

[Graham Crew:]

Yeah. Hi, Raj. On the open pit stockpiles, we've got stockpiles that will last through to the end of the year, maybe a little bit into next year. We're sort of on to the 0.6 gram material now and in the harder to get to kind of areas. So we just took the - while the underground volumes were down a little bit. And we were looking at the second half of the year, we took the opportunity to get some of that material through and bring that cash forward essentially. So we'll continue to do that over H2 given how stoking is going to be a little bit restricted until we can get the Paste fill going and the development far enough ahead. I think that'll be - that'll form part of the strategy in H2 as well. In terms of the cement increase, it's a good question. So we guided at the start of the year, the Paste adds about $5 to $7 per ton mined through adding net Paste fill, roughly half the cost is cement or binder costs, and going with the highest cement percentage, so we say that $3 becomes - we go from 6% average to 10% at least initially. That $3 of cement costs becomes $4.50 to use very round numbers, so about 50% increase in the cement costs, which adds maybe $2, - $1.50 to $2 to that to the mining costs. But as I said, we'll continue to work on optimizing that mix design. Alternative binders, certainly form part of that. And that's - some of that'll be about getting the logistics in place for fly ash or whatever that alternative binder turns out to be, which will really help negate the strength degradation issue that we saw in the quality assurance work.

[Raj Ray:]

Thanks Graham.

[Andrew Wray:]

Hopefully that answers the two questions.

[Raj Ray:]

Yeah, it does. Thanks Graham.

[Andrew Wray:]

Thanks. Paul maybe - yeah, talk through the cash covenant.

[Paul Thomson:]

Yeah. Thanks, Raj. It's good question. There are two factors just to actually address this point. So we've got CP to drawdown, which you quite rightly identifies 35 million. So we've been watching that very, very closely, for obvious reasons. So yeah, we are very comfortable in terms of being able to get to that position. So we've got quite a bit of headroom there. I can't tell you exactly what it is. But suffice to say that there is sufficient headroom there to allow us to do that without any pressure. And then after that we have the ongoing covenant in terms of the minimum cash position. So it then goes to 25 million in terms of the ongoing cash position we actually need to maintain at the minimum.

[Raj Ray:]

Okay, thanks Paul. Andrew, if I may, just a follow up question. Probably this is for Mitch. Just wanted to - with your near-mine exploration and regional exploration targets, given the drilling that's been done to date and what's remaining for the year, can we expect any initial resources on any of the targets or is it still too early to expect anything by the end of the year?

[Mitch Wasel:]

Raj, what we're doing right now is starting on the infill programs themselves. It depended on drilling production, right. So we're looking at getting that stuff, we're going to kick off the resource estimation process in August. So what we have, depending on how many drill results we have, we'll be able to incorporate some of those drill holes into the actual updated resource state models. But realistically, we probably won't have all of the holes in there. So portion of that would be incorporated into the resource update for this model, but I think realistically, you'd probably have more of that in the '22 updates.

[Raj Ray:]

Okay. And between the targets, submits you highlighted in the slides 21 and 22, which ones would you say most prospective and most advanced?

[Mitch Wasel:]

The ones that are most advanced at this point in time, we're looking at the - for the near-mine ones you're looking at Raj, is that what you're looking at?

[Raj Ray:]

Yeah, near-mines and then the regional.

[Mitch Wasel:]

Yeah, I would say the most advanced ones is probably going to be the Mid East and Dead Man Hill because we do have a lot of drilling that was done in the open pits in there. They're old historical open pits from there. So we have to sit back and sort of assess what's going on as far as the structure is concerned, because it was very wide space, the drilling spacing at Mid East was over half a kilometer and Dead Man Hill, I think was a couple 100 meters in between the fences here. So there's still a lot of room for further interpretation. And then we're going to think about what we're going to have to do there for the next phase of the drilling on it. But I would say that resource updates in those particular areas are probably at least a year out for now depending on how well we hit it, what targets we come up with.

[Raj Ray:]

Okay, and then the regional stuff?

[Mitch Wasel:]

Regional stuff, well, we've had some good hits already. But this is just like I say, we're doing 400 meter spaced aircore lines or ways away from that. Yeah, we're going to run the IP and stuff for the better targets that we've got there. And that'll help guide us for the next phase of drilling. So we'll - depending on expenditures that we have for next year's budget for 2022. We'll be focusing obviously, on the best targets, which is probably the stuff at Kwahu Hill and at Guadium. And in Kwahu Hill is important as well, because it's already within the Benso mining lease. So you wouldn't be looking at permitting issues and stuff through there. It's already within the mining lease. So if we can accelerate that that would be one of the prime targets to bring something on earlier than later, where the other ones you still have to look at drilling them and the permitting process and stuff that would have to go through should we be successful.

[Raj Ray:]

Okay. Thanks guys. So that's it from me. Thanks Andrew.

[Andrew Wray:]

Thanks very much, Raj.

[Operator:]

Your next question comes from Jeremy Hoy of Canaccord. Please go ahead.

[Jeremy Hoy:]

Hi, everyone. Thank you for taking my questions. Most of my questions have been answered already. But just back to development quickly, I was wondering are you guys anticipating that 2022 production will be impacted at all at this point? Or are you pretty comfortable that you guys will be able to catch up in H2?

[Andrew Wray:]

Thanks Jeremy. Maybe Graham, you want to touch on that.

[Graham Crew:]

Yeah. Thanks. Thanks Andrew. Thanks for the question Jeremy. I think the development is definitely key to us building inventory and building flexibility. But the other key is getting the Paste fill back online. So there probably are two key operational projects at the moment, over and above production, because that's really what unlocks the value in 2022. So getting the Paste fill operating in Q4, it's about six months behind where we wanted it to be when we started commissioning the plant at the start of the year. And it should unlock a lot of that secondary site material in 2022. So we were really re-jigging all of the schedules. So getting the development rights up, getting the Paste fill back on track those things should unlock 2022 pretty well.

[Andrew Wray:]

Yeah, and I think just to underline that, Jeremy. The work we've got underway as Graham said in development, where we're starting to more consistently hit the rates that we targeted, some of the strength tests coming back out of the Paste fill is overlaying the containing those issues to 2021. So we exit the year with effectively resolved. We're going to obviously continue to optimize the pace, we're going to continue to target further increases in development rates. But that's to go beyond 2022 not to achieve what we set out in 2022.

[Jeremy Hoy:]

Got it. Thank you very much. So hand in hand those are both critical path at this point.

[Andrew Wray:]

Yeah.

[Jeremy Hoy:]

Yeah. Thank you.

[Andrew Wray:]

Thank you.

[Operator:]

Your next question comes from Don DeMarco of National Bank. Please go ahead.

[Don DeMarco:]

Well, thank you, Operator. Hi, gentlemen. Good morning. Just curious about what additional leavers you have for improving the balance sheet in the event that they're needed. I think we're all feeling pretty comfortable at the converts coming up for repayment next month. But are you done with the ATM? And what else could you draw upon, if necessary, they burn a little bit of cash in the back of the year and you need some additional buffer heading into 2022. Thank you.

[Andrew Wray:]

Thanks Don. Maybe I'll hand that over. I think there's a slide you want to refer to Paul that shows the liquidity available and just address specifically how we're looking at that.

[Paul Thomson:]

Yeah, exactly. So going on Slide 14, you'll see that we've put in liquidity in terms of potential available liquidity available to the business. So we've got - the cash currently at 73. There's remaining ATM capacity of 36 should we choose to grow that though, and then there's the 29 million, which is the net amount available in respect of the Macquarie's RCF facility. So it gives us a number of options, in terms of providing that additional liquidity going forward. There's also the fact of operating within a stronger gold price environment. So prevailing prices of 1800 plus is actually, obviously, very beneficial to us.

[Don DeMarco:]

Okay, thank you.

[Andrew Wray:]

I think maybe Don just to underline that the way we look at it at the moment is, on the basis of the plans we set out, we put a fair bit of detail out in the PEA even at lower gold prices and the business will fund those. I think as Paul mentioned earlier, between last year and this year, will be the best part 100 billion capital put into the business. And we've also reduced the net debt by 50%. And going forward, we're going to start to see some of the benefits of getting the development of the place where they need to be in terms of volumes. So that's going to improve the cash generation out of the business, which will then fund incrementally step ups in investment to deliver further increases in volume. So as we look at it that the business funds those from ongoing cash flows and we'll use the Macquarie facility, but that's what we need short-term to repay the convertible was and then we'll fund on an ongoing basis investment into the business.

[Don DeMarco:]

Okay, thank you for that additional color. That's all for me.

[Andrew Wray:]

Thanks Don.

[Paul Thomson:]

Thanks Don.

[Operator:]

Mr. Wray there are no further questions at this time. Please go ahead.

[Andrew Wray:]

Thank you very much. Thank you everyone for your time. And if there is anything else you need, please let us know and we'll get back to you and look forward to speaking again soon. Thank you.

[Operator:]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.